Why Health Care Costs So Damn Much (part 2 of 3)

Yesterday we looked at health care monopolies, the myth that Americans over-consume medical services, and the high cost of prescription drugs.  On Wednesday we conclude with the demise of non-profit health care entities and small business providers; how Americans spend more money for worse care than others; and the overwhelming cost of health care overhead.)

Must ALL Doctors Get Rich?

Doctors are a big part of the problem, the Washington Monthlyreported.

A much bigger factor is the price of physician and clinical services, which account for about a fifth of total U.S. health care spending. Adjusted for differences in the cost of living, the average orthopedic surgeon in the U.S. has a net income nearly three times what France’s equally well-trained orthopedic surgeons make for performing the same procedures.

Makes three times as much money but isn’t three times as good and isn’t three times as likely to help you with your creaky knee.  So why all the money?  according to that Journal of the American Medical Associationarticle about health care costs in 10 wealthy countries, specialists in the U.S. are paid an average of $316,000 a year while those in the 10 countries average $182,000.  General practitioners?  An average of $218,000 here and $133,000 there.  Even our nurses are paid more:  an average of $74,000 here, $52,000 a year there. And are we getting more for our money?  No, we’re not: our life expectancy is lower and our rate of infant mortality and maternal mortality are higher than in those ten other wealthy countries.  In other words, you can’t justify the higher prices we pay based on our superior health care system because there’s no evidence to support the assertion that we have a superior health care system.

So why are we paying so much?

The Washington Monthly continues.

In the 1980s, an American doctor on salary typically earned about 20 percent more per hour than other American professionals with comparable levels of education. But in recent years, according to a study published in Health Affairs, that income advantage has increased to nearly 50 percent. The McKinsey Global Institute found that if U.S. doctors earned the same amount as their counterparts in other advanced countries, America’s doctor bill would be roughly 35 percent lower.

The key term here is “on salary.”  When you were growing up, your doctor worked for himself (and yes, with the occasional exception, it was almost always a “him”).  Now, your doctor works for someone else.  Do you know why?  The local hospital bought your doctor’s practice so it can be assured that when some of those doctors need a specialist, they will use specialists that the hospital also owns and when some of those patients need hospitalization they will go to that hospital and not to another.  That benefits the hospital; it benefits the doctors; but how does it benefit the patient?  It doesn’t:  like the article said, the high cost of physician care is one of the major factors hurting patients.

Hospital Charges Are Out of Hand

More from the Washington Monthly.

A still larger factor in driving up costs are the inflated prices charged by hospitals. Hospital care accounts for about a third of total U.S. health care spending. While prices vary dramatically from one hospital to another (depending on how much competition they face), and from patient to patient (depending on their insurance plan), U.S. hospital prices overall are simply astronomical compared to what hospitals in other advanced countries charge for the same services. According to a 2012 study by the Commonwealth Fund, the average hospital visit costs nearly three times more in the U.S. than the average for other advanced countries.

A coronary bypass in this country, for example, costs an average of $78,000. In Switzerland? $34,000.  In Spain?  $14,500.  A hip replacement averages $40,000 in the U.S., $7200 in India, and $13,900 in Singapore.  A nose job averages $8500 here and $4200 in Mexico. A simple appendectomy costs nearly $16,000 here but only $2000 in Spain.

If you stay in a hospital that faces no competition, your bill will be $1,900 higher on average than if you stay in a hospital facing four or more competitors.

And here is the crux of the problem:  except for pushback from health insurers, which can only happen in places where there are hospital alternatives, hospitals can charge you as much as they damn well please and there’s not a thing you can do about it. They take advantage of that prerogative, moreover, every chance they get.  In the end, there’s no justification for hospitals’ ridiculously high prices, yet we, and our insurers, continue to act like good sheep and pay them.

Because all they want is to get rich and charging more for your product is how you get rich.

The Drug Companies: Not Really Competing

And then there are the drug companies, the Washington Monthly noted.

As late as 1995, fully sixty independent drug companies competed in America’s pharmaceutical markets, compared to just ten today.

So what’s the problem?  The problem is that they don’t compete with one another very much.  They’re all busy looking for blockbuster cures, not for drugs that are better than their competitors.  When there’s little competition for a given type of medical problem, the company with the only drugs that help can charge whatever it wants and you, the patient, have a choice:  pay the price…or suffer.  Literally.  The single biggest customer for drugs is Medicare, because it insures 44 million Americans, but Congress refuses to let Medicare negotiate discounts with the drug companies. Why?  Large drug company campaign contributions, that’s why.

And there’s more.

Not only did sixty drug companies combine into ten, but hospitals, outpatient facilities, physician practices, labs, and other health care providers began merging vertically and horizontally into giant, integrated, corporate health care platforms that increasingly dominated the supply side of medicine in most of the country. Like Amazon or Google, these platforms extend their power by controlling the very marketplace in which customers and suppliers have to do business. Even nominally independent surgeons, for example, can’t stay in business if the only hospital in town won’t grant them admitting privileges, or if it grants “affiliated” surgical teams better terms. Many of these platforms became part of large chains operating in multiple regions; others achieved dominance in a single city, which still gave them extraordinary market power.

Hospitals are Killing Us

Then the Washington Monthly turned its attention to hospitals.

According to a study headed by Harvard economist David M. Cutler, between 2003 and 2013 the share of hospitals controlled by large holding companies increased from 7 percent to 60 percent. A full 40 percent of all hospital stays now occur in health care markets where a single entity controls all hospitals. Another 20 percent occur in regions where only two competitors remain. To use another measure, according to the standard metric used by the Federal Trade Commission to measure degrees of concentration, not a single highly competitive hospital market remains in any region of the United States, and nearly half of all markets are uncompetitive. A study recently published in Health Affairsfound that hospital ownership in 90 percent of metro areas is so concentrated that it exceeds what antitrust regulators have historically regarded as the threshold for when action is needed to avoid inefficiency and collusion.

This consolidation in health care shows no sign of abating. Just the first six months of this year saw fifty-eight major mergers among hospitals and health care systems, with six of those involving corporations boasting $1 billion or more in revenue.

And we see where this has led us:  less choice, higher prices, more money for them, and less money for us. As the article noted, this situation is getting worse, not better.  In the greater Philadelphia area where The Curmudgeon lives there were probably more than 50 independent hospitals a decade ago.  Now, though, one by one, they’re being acquired by just a few major hospital companies, both non-profit and for-profit.  That distinction between non-profit and for-profit, moreover, means less with every passing year:  the only difference is that shareholders reap the benefits when for-profits make a lot of money and the people who run the place and board members who get lucrative contracts reap the benefits when non-profits make a lot of money.  In the future there will be less competition, not more, and that’s going to make it even harder to put the brakes on rising hospital prices.

(Tomorrow:  the demise of non-profit health care entities and small business providers; how Americans spend more money for worse care than others; and the overwhelming cost of health care overhead.)


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